recent posts

This Great Graphic was posted on Sober Look last week (August 24). It shows the differences of opinion among many of the major banks, including primary dealers for the timing of the Fed's tapering. We note that most US banks included have the Sept call, with Jefferies, the investment bank looking for October, while Bank America Merrill Lync…

The US dollar's technical tone improved markedly especially during the second half of last week, and this is not picked up in the latest Commitment of Traders report on the speculative positioning in the CME currency futures.
The cause of the dollar's rally paradoxically lies in the future as opposed to the past. That is, the price ac…

The principal economic adviser to the Indian government has been quoted on the news wires suggesting the possibility of coordinated intervention by emerging market countries. Brazil was cited, though local central bank sources have denied it.
India's rupee has fallen almost 8% this month, its largest monthly decline in more than a decade a…

The US dollar remains firm, though is seeing little net movement since late yesterday. The fragile stability in emerging markets that was seen yesterday carried into today's activity. The MSCI Emerging Market equity index is up about 0.6%.
We note that although reports show a continued exodus from emerging markets, both Taiwan and Korea e…

Dollar Holds on to Bulk of Gains, but Markets Quiet into Week and Month End
Reviewed by Marc Chandler
on
August 30, 2013
Rating: 5

Boosted by better net exports and greater inventory accumulation, Q2 US GDP was revised higher to 2.5% from 1.7%. This, coupled with a decline in weekly jobless claims, has kept the dollar bid. The data and the seemingly less imminence of strike on Syria have lifted US interest rates.
The US economy has regained some momentum after being hit …

Fed may Still have to Lower GDP Forecast
Reviewed by Marc Chandler
on
August 29, 2013
Rating: 5

This Great Graphic was posted on The Atlantic website by Matt Schiavenza. He thinks he is illustrating China's incredible population by identifying four other regions that have similar populations.
Yet quite clearly India alone has a similar population as China's, especially when joined by Nepal, Bhutan and Bangladesh. Indeed, if one w…

Great Graphic: Conceptualizing the World's Population
Reviewed by Marc Chandler
on
August 29, 2013
Rating: 5

The dollar is broadly higher against the major currencies, with the Swedish krona and euro suffering the most. Poor retail sales in Sweden and unexpected weakness in the German labor market report (unemployment rose 7k vs the consensus forecast of a 5k drop) were the ostensible drivers after a relatively quiet Asian session. While the dollar i…

The Dollar Rides High against Majors, while Emerging Markets Recover
Reviewed by Marc Chandler
on
August 29, 2013
Rating: 5

We think it would be a good idea to again take a step back to see how EM FX and equities have performed after the recent chaotic price action. After selling off after Bernanke’s tapering talk starting May 22, EM FX then bottomed in late June/early July before staging a modest corrective recovery as…

EM FX and Equities - Where Do We Stand Now?
Reviewed by Marc Chandler
on
August 28, 2013
Rating: 5

Sterling had traded heavily in anticipation of dovish comments by BOE Governor Carney. Prior to his speech, sterling slipped to its lowest level against the dollar since August 14, However, Carney did not break new ground or press very hard against the rise in UK rates or sterling since the start of the month. Even with sterling's under p…

Sterling Sold on Carney Speculation, Bought Back on Fact
Reviewed by Marc Chandler
on
August 28, 2013
Rating: 5

Today feels a lot like yesterday in the global capital markets.
A UN vote to sanction a strike on Syria is likely in the next day or two. The dollar remains bid, though unlike yesterday, it is recording upticks against the yen. The rout in emerging market equities and currencies remain under pressures. The MSCI Emerging Markets equity index f…

(from me colleagues Dr. Win Thin and Ilan Solot)
The Brazilian central bank (BCB) announces its decision tomorrow after markets close, when markets almost universally expect rates to be increased by 50 bp to 9.00%. We side with consensus on this one.
Last week’s heavy handed FX measures by the BCB should be enough to put to rest any speculation o…

The capital outflow from the emerging markets is proving as destabilizing as the previous inflows. Pundits can talk about currency wars all they want, but the real issue is the ability to cope with volatile capital flows, which is the price of integration in global economy.
In fact, the real surprise is the limited resort to outright protectio…

Italy is the Weak Link in Europe
Reviewed by Marc Chandler
on
August 27, 2013
Rating: 5

The US dollar is well bid against most of the major and emerging market currencies, driven by a general risk averse attitude, sparked in part by a growing sense that a strike on Syria is imminent, while the crisis in Egypt appears far from over. The semblance of stability seen at the end of last week in the emerging markets has been dashed as the…

Israel central bank meets Monday and is expected to keep rates steady at 1.25%. Acting Governor Flug continues to chair the meetings as the search for a successor to Fischer continues. There are reportedly three candidates that have met with the vetting committee. ILS has gotten caught up in the E…

Considerably weaker than expected durable goods orders in July cast doubts on the momentum of the US economy in early Q3 as market contemplates Fed tapering.
The 7.3% headline decline contrasts with expectations for a 4% decline, while the June gain was pared to 3.9% from 4.2%. This is a volatile series for sure as bit ticket items skew the rep…

With many still on summer vacation and London markets closed for a bank holiday, it is not surprising the week is off to a quiet start. This, coupled with the light news stream has kept the major currencies in narrow trading ranges.
The euro and sterling have been confined to about 30 ticks. In very thin, pre-Tokyo activity, the dollar was mark…

In recent weeks we have identified four main elements to the investment climate: Speculation about Fed tapering the cyclical recovery in Europe, the stabilization of China and a resumption of capital exports from Japan.
These remain very much intact, except that in the latest reporting period, Japanese investors sold foreign bonds, breaking a s…

Thoughts on the Week Ahead: Pitfalls around the Corner
Reviewed by Marc Chandler
on
August 25, 2013
Rating: 5

This Great Graphic is from Branko Milanovic. It shows the share of private household consumption in GDP for the US and China since 1970. The share of consumption has risen in the US and fallen in China.
Many observers talk about a transition in China. Often what is meant is an evolution away from the export-oriented model and toward domestic …

This Great Graphic was composed on Bloomberg and depict the performance of the S&P 500 (white line) and the MSCI Emerging Market Index (yellow line), in a log chart, from the start of last year.
Although a number of emerging market currencies have been under strong downside pressure in recent days, the big sell-off in emerging market equities…

The US dollar was broadly mixed last week. Its gains were strongest against the New Zealand dollar and Australian dollars (~3.6% and 1.70% respectively). The Norwegian krone and Canadian dollar lost almost as much ground as the Aussie.
On the other hand, Swedish krona and Swiss franc were the strongest currencies (~0.5%), owing in part to a pr…

The fact that US earnings growth is so poor is generally appreciated. What may be less recognized is the disparity of earnings according to race and gender To be sure the discrepancy does not prove discriminatory business practices. Occupation, education and skill levels are likely significant explanatory variables.
This first Great Graphic …

Great Graphic: Earnings by Race/Ethnicity and Gender, Black/White Unemployment Ratios
Reviewed by Marc Chandler
on
August 23, 2013
Rating: 5

Brazilian officials finally pulled a big rabbit out of their policy hat. The central bank committed to selling up to $500 mln in FX swaps daily and up to $1 bln on Fridays – amounting to around $60 bln. The program will last until the end of the year.

In short, the new measure gives markets a far greater degree of …

Excellent Timing for Brazil's Double Down
Reviewed by Marc Chandler
on
August 23, 2013
Rating: 5

After a difficult week, emerging markets appear to be stabilizing ahead of the weekend, with the MSCI Emerging Market equity index up about 0.65%. Most emerging Asian currencies, with the notable exception of the Indonesia's rupiah, are trading firmer. The stepped up efforts by officials, like the bond buying in India and Brazil's $60 b…

Many foreign central banks have intervened in the foreign exchange market to slow the decline of their currencies. The intervention requires the selling of reserves.
The most liquid part of the reserves are often kept in US Treasuries. For ease of transaction, the such reserves are often kept at the Federal Reserve itself, which offers some cu…

Great Graphic: Fed's Custody Holdings Likely to Fall Further
Reviewed by Marc Chandler
on
August 22, 2013
Rating: 5

(from my colleague Ilan Solot)
1) Mexican data is taking a decisive turn for the worse
2) Brazil is stepping up intervention in FX and fixed income markets
3) The Turkish central bank unexpectedly raised the top end of the corridor by 50 bp to 7.75%
4) Peru got upgraded
5) India will now try a bond buyback program
6) In Indonesia will announce a n…

Emerging Markets: What Has Changed
Reviewed by Marc Chandler
on
August 22, 2013
Rating: 5

The US dollar has continued to recover against most of the major currencies in the aftermath of the FOMC minutes. We continue to believe that an objective reading of the minutes fails to shed fresh light on the precise timing of the Fed's tapering.
The rejection of George's proposal to provide a clearer indication of tapering sooner ra…

As is often the case, the news is read, at least initially, to support one's previously held beliefs. The market's initial read of the headlines minutes from the FOMC was to confirm expectations that the Fed will being tapering next month. The Treasury market sold off, dragging stocks down as well, and sending the dollar higher in the f…

The US dollar has stabilized against the euro, sterling and yen, where it has been confined to yesterday's trading range, awaiting the FOMC minutes from the July 30-31 meeting later today. Against the dollar bloc and several of the beleaguered emerging markets currencies, like India, South Africa, Indonesia and Turkey, the greenback has exte…

A Short Note Before FOMC Minutes
Reviewed by Marc Chandler
on
August 21, 2013
Rating: 5

The US dollar stands at the fulcrum. Investment flows are leaving emerging markets, with currencies from Brazil,India,Indonesia and Mexico being hit the hardest over the last few sessions. The MSCI Emerging Market Index is off 4.5% over the past five sessions and the rout continues.

Falling commodity prices, country specific challenges, as in I…

Europe Main Beneficiary of Flows from Emerging Markets
Reviewed by Marc Chandler
on
August 20, 2013
Rating: 5

(from my colleague, Ilan Solot)Central Bank of Turkey meets Tuesday and is expected to keep policy rates steady, though given the pressure in EM currencies, we assume an off chance of a surprise rate increase. With the lira having stabilized for most of August, we do not see any need to tighten again yet. Average cost of funding remains near 6.5…

The US dollar is starting the new week in a mixed fashion. It is weaker against most of the major currencies, firmer against the emerging markets. It is as if the flows leaving the EM asset class and the reduction of US exposure is going into Europe.
Trim Tabs reports almost $20 bln has been pulled out of US-based fixed income mutual funds an…

We have in recent weeks (see here and here) identified four primary drivers shaping the investment climate: speculation about Fed tapering, stabilization of the Chinese economy, the reflation story in Europe and renewed capital outflows from Japan.
While near-term risks to this scenario are minimal, we are concerned that next month is a differ…

A Few Thoughts to Start the New Week
Reviewed by Marc Chandler
on
August 18, 2013
Rating: 5

On this side of the crisis, the disparity of income and wealth has become a more prominent feature of the political discourse, though it is far from clear that much is being done to address it.
This Great Graphic illustrates the concentration of wealth in the United States. It was posted on the Daily Kos blog. It comes from an Occupy Poster.…

Great Graphic: Illustration of the Concentration of Wealth in the US
Reviewed by Marc Chandler
on
August 18, 2013
Rating: 5

Market positioning, amid thin conditions, appears to be the best explanation for the seemingly inexplicable price action in the foreign exchange market. The consensus has been bullish the dollar on ideas that the Fed will be the first of the major central banks to begin pulling away from the extraordinary policies pursued in the aftermath of the…

The S&P 500 appears to have traced out a head and shoulders topping pattern. This Great Graphic was created on Bloomberg. The left shoulder was put in place in the third week of July. The head was in early August and the right should was carved out earlier this week.
The importance of technical patterns lies in their measuring objective. …

Great Graphic: Head and Shoulders in S&P 500 ?
Reviewed by Marc Chandler
on
August 16, 2013
Rating: 5

This Great Graphic is really an MRI of the brain. It was posted by Maria Popova on her always stimulating blog, Explore. The MRI was provided by Dr. Chuck Hillman from the University of Illinois.
It shows that after a 20-minute walk there is increased brain activity and the particular type of activity is generally associated with happiness.
…

Great Graphic: Your Brain Before and After 20-Minute Walk
Reviewed by Marc Chandler
on
August 16, 2013
Rating: 5

An eerie calm, after yesterday's dramatic swings, has settled over the capital markets. The US dollar itself is little changed against the major and most emerging market currencies, consolidating yesterday's losses. The selling pressure that took the S&P 500 down 1.4% yesterday eased in Asia where the MSCI Asia Pacific Index was o…

News that weekly initial jobless claims fell to their lowest level in six years, with new cyclical lows in the 4-week moving average, have overwhelmed the other US data reported today. A recent Bloomberg poll found a little more than 2/3 expect the Fed to begin tapering next month. The risk is that many are putting too much emphasis some indica…

Take Aways from US Data Dump
Reviewed by Marc Chandler
on
August 15, 2013
Rating: 5

A theme that threads through many of our longer term posts is that the model of capital accumulation associated with Reagan and Thatcher is over (see here, here and there) .
What is to replace it is not clear--anymore than when Nixon made the final break from the gold standard and introduced wage and price controls 42 years ago today, we knew Re…

Great Graphic: The Rise of Anytime, Anywhere Workers
Reviewed by Marc Chandler
on
August 15, 2013
Rating: 5

The US dollar is trading heavier today, but mostly within recent ranges. Sterling is an exception. July retail sales were twice as strong as the consensus expected. This continues the string of data suggesting the UK economy may be accelerating after posting 0.6% Q2 GDP. Sterling's recovery from 5-day lows set yesterday was extended to re…

German Chancellor Merkel begins a 56-stop campaign tour today as she seeks a third term in five-and a half weeks. Her rival, Steinbrueck, who was the finance minister in the Grand Coalition of her first term, has stepped up his own efforts, with little results in the polls.
The latest weekly Forsa poll for Stern magazine and RTL television was …

German Campaign Beginning in Earnest
Reviewed by Marc Chandler
on
August 14, 2013
Rating: 5

Speculation that the Fed will being slowing its purchases of long-term assets as early as next month is arguably the most significant market force. One would intuitively expect that, given the forward guidance of both the BOE and ECB that US interest rates would be rising relatively quicker. This is not the case.
This Great Graphic, composed…

Great Graphic: Fed May Taper, but UK and German Bond Yields are Rising Faster
Reviewed by Marc Chandler
on
August 14, 2013
Rating: 5

Bolstered by recent US data and official comments, speculation that the Fed will begin tapering as early as a month from now has negated the impact of the positive surprises from Europe today, leaving the dollar with a firmer bias.
The debate among is not so much whether the Fed tapers as is it already discounted. Noted dove and voting FOMC me…

This Great Graphic, which shows the electricity consumption per household in California and the rest of the United States was posted on the Wonk Blog of the Washington Post. Californians use about a third less electricity than others in the country.
Conventional wisdom has tended to emphasize a range of conservation measures, including high ret…

Great Graphic: California and Electricity
Reviewed by Marc Chandler
on
August 13, 2013
Rating: 5

The reforms proposed by Mexico's President Pena yesterday have the potential to be a game-changer, even if the peso does not immediately benefit. Indeed the US dollar is extending yesterday's gains against the peso, with last week's high near MXN12.75 coming into view.
Reform of Mexico's energy sector has been one of the promis…

Energy Reforms Good for Mexico, even if not for Peso Immediately
Reviewed by Marc Chandler
on
August 13, 2013
Rating: 5

It is difficult to talk about the US dollar today it rises sharply against the yen and dollar bloc currencies, while falling against the European currencies. The economic data has reinforced this price action, but it seemed emergent prior to the data.
The dollar had already recovered from the dip below JPY96 in early Asia yesterday and was nea…

Dollar Pulled Higher by Yen, but Pushed Lower by Europe
Reviewed by Marc Chandler
on
August 13, 2013
Rating: 5

We have shown this chart several times, but given the shift in recent weeks, we thought an update would be useful.
This Great Graphic, composed on Bloomberg, shows the dollar against the euro (white line) and the 2-year interest rate differential between the US and Germany.
We continue to be impressed with how well the rate differential trac…

Great Graphic: Two-Year US-German Yield Differential and the Euro
Reviewed by Marc Chandler
on
August 12, 2013
Rating: 5

An internal Bundesbank report that has been leaked warns that Greece is going to need new funding next year. In some respects, this is hardly news. The IMF, part of the Troika of official creditors that been managing the assistance program, has been saying this for quite some time.
It has been the German government that has played this down, …

Greece Back in Play as BBK Strikes out at the German Government
Reviewed by Marc Chandler
on
August 12, 2013
Rating: 5